By Manuel Godia Castillo, Senior Associate, Tax Area.
Godia Asesores Tributarios obtains the estimation in the recent ruling of the High Court of Justice of Madrid, of September 11, 2024, which addresses fundamental issues on the deductibility of remuneration to directors of companies in the context of Corporate Income Tax, as well as the remuneration received for their services provided other than those of director. In this analysis, we focus on the most relevant aspects of the ruling, as well as the applicable regulations and their interpretation by the Court.
The entity that Godia Asesores Tributarios represents challenged the resolution of the Regional Economic Administrative Court (TEAR) that dismissed several economic-administrative claims related to the deduction of expenses in the Corporate Income Tax corresponding to the years 2013, 2014 and 2015. In particular, the deductibility of the remuneration paid to the Director of the Company was questioned, arguing that the articles of association established that the position of director was free of charge and whether the performance of other work for which he received remuneration falls within his status as director or, on the contrary, responds to an independent employment relationship, taking into account that the managing partner owns 100% of the company, therefore not having the consideration of an employee.
Applicable regulations: The Judgment is based on article 14 of the Consolidated Text of the Corporate Income Tax Law, which establishes the non-deductible expenses of the tax, as well as article 217 of the Consolidated Text of the Law on Capital Companies, which regulates the remuneration of Directors.
The High Court of Justice of Madrid concluded that, although the statutes establish the free nature of the position, the remuneration corresponding to services actually rendered must be considered deductible expenses, in addition, the judgment clarifies that the lack of statutory provision for the remuneration of directors does not automatically imply that these are considered liberalities and therefore non-deductible expenses in Corporate Income Tax.
Additionally, the expenses related to the remuneration received by the partners, who at the same time are Directors as a consequence of the effective provision of services, other than those derived from such condition, in favor of the business activity of the company, constitute fiscally deductible expenses.
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